Student Loans are available to help students meet their expenses while studying.
HMRC is responsible for collecting repayments in cases where the borrower is within the UK tax system and no longer in higher education.
What are the student loan types?
The loan deductions operate similarly and are calculated as a percentage of employee earnings subject to Class 1 National Insurance contributions above a specific threshold.
Student Loan Plan 1 (SLP1) was introduced on 6 April 2000
Student Loan Plan 2 (SLP2) was introduced on 6 April 2016
Student Loan Plan 4 (SLP4) was introduced on 6 April 2021
Postgraduate Loan (PGL) was introduced on 6 April 2019
When do I need to operate loan deductions?
Direct instruction from HMRC: HMRC will issue an SL1 start notice to tell an employer to start operating a Student Loan (Plan 1, Plan 2 or Plan 4). The SL1 will contain the Plan Type that must be operated.
Instruction from a P45 with the 'continue student loan' box completed: If the new employee does not know the type of loan, the employer must operate a Student Loan Plan 1 (this only applies where the employee has student loans). The employee should contact the Student Loan Company to confirm their correct loan types.
Instruction from a Starter Checklist completed by a new employee: The employer should set up the loan deductions as indicated by the questions on the Starter Checklist.
What if I made a mistake or the employee doesn't know their plan type?
Should a new employee not know their student loan type, the employer must operate a Student Loan Plan 1 for Student Loan Plan Type 1, Plan Type 2 or Plan 4 only.
If the wrong 'plan' type is being operated for a student loan (Plan 1, Plan 2 or Plan 4), HMRC will subsequently issue an SL1 notifying the correct plan type.
Likewise, if the wrong loan 'type' is being operated, HMRC will issue the appropriate Start Notice (SL1) to notify the correct loan type.
HMRC will instruct an employer to stop making loan deductions by issuing an SL2 stop notice to stop a Student Loan (Plan 1, Plan 2 or Plan 4).
How do deductions apply?
Student loan: Once an employee's income goes over the relevant threshold, the employer will deduct 9% of their income over the threshold towards repaying their student loan.
Postgraduate loan: Once an employee's income goes over the relevant threshold, the employer will deduct 6% of their income over the threshold towards repaying their postgraduate loan.
Thresholds for the tax year 2022-23
Threshold | Yearly rate | Monthly rate | Weekly rate |
Student Loan Plan 1 (SLP1) | £20,195 | £1,682.91 | £388.36 |
Student Loan Plan 2 (SLP2) | £27,295 | £2,274.58 | £524.90 |
Student Loan Plan 4 (SLP4) | £25,375 | £2,114.58 | £487.98 |
Postgraduate Loan (PGL) | £21,000 | £1,750 | £403.84 |
What are my employer's responsibilities?
making deductions of student loan repayments from an employee's earnings
keeping records of the deductions made
paying the deductions over to HMRC
providing HMRC with details of the deductions within each FPS submission
giving employees details of their deductions on their payslips and P60 certificate
on form P45, indicating if the student loan deduction should continue
How do I apply a student loan deduction in Moonworkers?
Go to My Employees
Select your employee from the list
Click on view
Select Employees details
Scroll down to Edit employee's starter declaration
Click on the dropdown menus and apply the correct student or postgraduate loan plans from the list